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Prudent Investor Update, October 25, 2018

The Worlds of Investment Finance and Public Service: Bridging the Gap

How do you bridge the two distinct worlds of municipal government (financially cautious, public service oriented) and the often high-stakes, profit-driven world of investment finance?

As municipalities prepare for broader investment powers under the prudent investor (PI) legislation, we need expertise in both spheres more than ever.  

On the one hand, every dollar you earn on investments is one less dollar you have to bill the property taxpayer or beg from the province, notes Judy Dezell, Director of AMO’s Enterprise Centre.  The reality is that municipal governments can’t afford to forego investment earnings that would help fund essential capital projects:  property taxes and provincial grants are not enough. On the other hand, it must be done in a prudent and thoughtful way.

ONE Investment, which has provided investment solutions for municipalities for more than two decades, has found a way to bridge the two worlds. As part of its turnkey offering under PI, ONE is creating a client service team, comprised of a municipal finance expert and an investment expert, to help provide the full range of expertise that is needed.

This team will travel the province to help municipal governments develop their views on how to implement PI in a way that will make a meaningful difference in funding capital projects.

The first step in investing is for the municipality to define its investment needs. The municipal finance expert can help the local government identify the sizes, nature and timing of the long-term cash flow needed to fund the municipal asset management plan. For example, a road may need work in five years and a bridge might be due in 10 years, or a recreation centre may need ongoing maintenance until its replacement in 20 years. Or, contingency reserves may be needed in case of an unexpected draw, such as the impact of a flood.

With cash flow needs understood, the investment expert can then step in to help develop a careful plan to ensure the highest likelihood of achieving the desired cash-flow outcomes at a tolerable risk level --  while ensuring built-in flexibility to accommodate uncertainties along the way.

The investment expert will also invest the money, monitor regularly and review investments annually with the client. For example, the portfolio may need to be rebalanced periodically.  As well, as the timeframe narrows on projects, holdings will be adjusted to reduce risk. Modifications might also be needed based on changing local circumstances and priorities.

ONE is pleased to announce that its investment expert is now onboard and working to define the coming PI offerings. Terrie Miller is a CFA Charterholder with more than 30 years’ experience in the investment industry that includes stock analysis and portfolio management, institutional investment consulting, business leadership and institutional solution development.  

During the course of her career, Terrie served at senior levels of some of Canada’s largest financial institutions. As well, she is currently participating in delivering the Investment Basics seminar and assisting with client service. Once the Ontario Securities Commission approves ONE’s application, she will become ONE’s investment advisor for municipalities. The municipal finance expert will be announced in due course.

OSC Application Would Allow ONE to Expand Service Offerings

As outlined above, one of ONE Investment’s top priorities is to make high quality investment management services available to municipalities that do not have the in-house expertise or the financial resources to hire an advisor.

To accomplish this goal and create the customer service team, ONE has made an application to the Ontario Securities Commission (OSC) to provide investment advisory and management service. The application seeks an exemption from certain registration requirements. There are precedents for this, as some larger municipalities have received exemptions in the past.

ONE has been serving the municipal sector for more than 25 years with investments under the prescribed list. It understands the needs of the sector, the regulatory environment and how to manage partnerships with financial service providers.

A Joint Investment Board (ONE JIB) will be formed by interested municipalities to pool their investments and take part jointly in the prudent investor standard. This way, municipalities of any size can improve returns and better manage risk. For municipalities large or small, the ONE JIB model offers further benefits of scale and expertise.

Collectively, ONE JIB members will be required to have expertise in investment management, risk management, finance, corporate government or other relevant experience. The ONE JIB will be responsible for developing and maintaining an investment plan that reflects the policies of participating municipalities. That plan will then be carried out by ONE Investment through professional money managers.

The prudent investor legislation establishes a robust governance and compliance system. In addition, the ONE JIB agreement will also provide for strong protections for the municipal investors. With specific processes to ensure due diligence and transparency, municipal governments will have confidence that ONE Investment is meeting the highest standards of integrity and accountability.

As well, ONE Investment will operate as a not-for-profit, further ensuring it will act in the best interests of municipal investors.

ONE Investment believes that it has demonstrated a strong case for an exemption, notes Judy Dezell, Director of AMO’s Enterprise Centre. She says that ONE is optimistic about a favourable response from the Commission and will keep municipalities updated on the decision.